Minimum Maintenance Requirement
A restricted account does not require that the margin be replenished until the equity has fallen below 25% of the LMV. This 25% minimum level is called a minimum maintenance requirement.
If a customer’s account goes below the minimum maintenance requirement, the customer will immediately get a call from her broker with a forceful request to deposit more funds. To meet the minimum maintenance requirement for a long margin account, the customer must maintain equity of 25% of the LMV at all times. If the account goes below the 25% level, the customer will need to deposit securities or funds to raise the account back up to the 25% level. If the customer does not deposit enough funds, the broker-dealer will sell off the customer’s securities to meet the requirement.
Example Questions
1. Jenny Jones opened a margin account last year. She bought 1,000 shares of XYZ at $50 per share on margin. Unfortunately for Jenny, XYZ has been declining in value over time. It is now selling at $30 per share. Jenny’s broker has called asking her to deposit more funds into her account. How much money must Jenny deposit to make the minimum 25% call?
Jenny’s initial investment:
LMV – Debit Balanc